Measuring Economic Health Memo xxxxxxxxx Eco 212 July xx, 2010 Xxxxxxxxxx

In the next few paragraphs I will briefly examine how GDP (gross domestic product) is used to measure the business cycle, the roles of government bodies that determine national fiscal policy, and explain the effects of fiscal policies on the economy.
Gross Domestic Policy and the Business Cycle
GDP (gross domestic product) is the best indicator of where the economy is in the business cycle; “because GDP is our best measure of economic activity, the business cycle is usually illustrated using movements in GDP” (Hubbard & O'Brien, 2010, p. 691). The business cycle has four phases; expansion, peak, recession, and trough. An increase in economic activity indicates the economy is in the expansion phase of the business cycle. A decrease in economic activity indicates the economy is in recession. When the economy stops growing and start shrinking the economy is in the peak phase of the business cycle. When the economy stops shrinking and starts growing the economy is in the trough phase of the business cycle. The following image shows the business cycle phases. Fiscal Policy and its Effects on the Economy
The Congress and The President of the United States of America determine national fiscal policy. Congress has the authority to tax. The President creates the federal budget each year but the Congress modifies and votes on the budget. Through its different bureaus, offices, and departments (such as the Internal Revenue Service) the executive branch implements fiscal policy.
Fiscal policy has many important effects on the economy and therefore a sound fiscal policy is an essential part of a strong economy. Through taxation the federal government has a direct impact on the disposable incomes of individuals and the capital of businesses and corporations. High